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persfin-digest          Friday, July 31 1998          Volume 05 : Number 039



In this issue of the Personal Finance Digest:

       Re: politics in persfin
       Re: Credit reports
       Re: Saving Social Security
       Will Ideas Sought
       3 free shares of not publicly traded stock.
       How do "tax deductible" contributions work?
       Gift taxes -- 10k limit doesn't apply for estates less than $600k
       Re: Gift taxes
       Re: stock sale & capital gains tax
       Re: Gift taxes
       re: Market Surveys
       Credit reports, and gold coins
       re: Limit on 403(b) contributions
       Re: Finding solutions to Social Security

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----------------------------------------------------------------------

Date: Wed, 29 Jul 1998 06:45:46 -0700
From: David <[e-mail]>
Subject: Re: politics in persfin

Although people feel very strongly about politics, I do not think  PERSFIN DIGEST is the appropriate place to vent those views. The purpose (I thought) of
this digest was to inform and educate subscribers about finance and investing through an exchange of questions and answers. I think some of the recent
posts stray well afar of this group's focus. Of course, the government affects our finances through taxes, social security, etc. However, lamblasting the
government  seems a waste of valuable space in the context of PERSONAL FINANCE. It degrades into partisan politics and subscribers gain nothing in terms of
their personal finance. There are plenty of other VERY APPROPRIATE dedicated forums for political discussion on the internet. Let's take the partisan
politics to those forums.




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Date: Wed, 29 Jul 1998 10:02:28 -0600
From: "J. Morgan" <[e-mail]>
Subject: Re: Credit reports

According to TransUnion, residents of CO, GA, MD, MA,
NJ and VT are entitled to one free copy a year.

In addition, Colorado requires that the bureaus notify
consumers if there are more than 3 inquiries on a credit
file in a calendar year.


J.
Last night I was laying there looking up at the stars,
and I thought....  Hey!  Where's my ceiling?!






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Date: Wed, 29 Jul 1998 10:12:43 -0600
From: "J. Morgan" <[e-mail]>
Subject: Re: Saving Social Security

>From: BARBARA SCHUTZ <[e-mail]>
>Subject: Finding solutions to Social Security
>
>I am really interested in the discussion re "Social Security," but I am
>primarily interested in ideas that will help us solve the current
>funding problem. It seems that many are at work trying to protect our
>social fabric by devising ways to keep social security solvent.  I think
>our government can use good ideas to accomplish that.  Is anyone else
>interested in this discussion?  BFS

OK, I'll bite.

1.  Allow me to invest at least half of my FICA contribution as I see fit.
Allow me to do this only if I can score appropriately on a standardized
test of investment, financial and tax planning skills.

2.  Pay benefits on a graduated "need-based" schedule.  For example,
MFJ with AGI of < $100,000 gets full benefit.  Start phasing benefit out
until it disappears at AGI of $200,000 or so.  WHAT?  I paid in all these
years, and...?  Well, it's just another TAX, isn't it?

3.  Phase in an increase in retirement age, to age 70.

Keep in mind two things:

These are just ideas thrown out to draw some flak, and
I *do* dearly love to play devil's advocate on occasion...

:-)

J.
Last night I was laying there looking up at the stars,
and I thought....  Hey!  Where's my ceiling?!






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------------------------------

Date: Wed, 29 Jul 1998 12:30:37 -0500
From: "Mark Jay Kaplan" <[e-mail]>
Subject: Will Ideas Sought

My wife and I have a yours, mine and ours family.
Does anyone have an idea on how best to write both our wills so that the
spouse and children get treated fairly.
Conceptually we agree that the surviving spouse should get money to sustain
the family and carry on, yet we want to insure all the children get a fair
share regardless of who dies first.

We both feel the 4 children are "ours" and each entitled to equal or "fair"
shares,
We are most concerned that our 7 year old is properly covered until he
becomes of age, and to a lesser extent my son (15), her daughter (14) and
then her daughter (18).

If she leaves the money to me, she wants to protect her daughters
inheritance when I go
If I die first I want to insure my son would eventually get something.
Yet if one of us died tomorrow we would need most of the money to help pay
bills, mortgage and future tuition etc.

I would hate for my money to go to my son's mother ( my ex) who is currently
the primary custody
and I would hate to see my wifes money never getting to my son

We feel we need a will in case of comas, what would happen if a auto
accident killed me and her a few days later etc

We do not have great assets, a home with mortgage, each with life insurance,
small joint investment accounts and furnishings and both of us had really
nothing before we married.





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------------------------------

Date: Wed, 29 Jul 1998 10:40:35 -0700
From: Christy Rohrig <[e-mail]>
Subject: 3 free shares of not publicly traded stock.

I don't know if this will ever be worth anything, but I figured I'd share this since I signed up
and the only cost is your time and internet usage fees (if any).

If you visit http://www.travelzoo.com they'll give you 3 shares for signing up
To sign up, press the link "Privacy Policy" and/or "Want to become a co-owner?"
in the top right corner,  Keep going through the links, and follow the
instructions.  Took me less than three minutes.

They'll ask for your name and email.  You can only register during non-peak net use periods.
(Try it, if it works great, if not, try later or just forget it.)  They'll email you a
information code that you use to confirm the shares when you do, you can share who refered you
to the site.  I'll get an additional share (up to 10 total) if you put my name down.  So, if you
do try this, please say [e-mail] refered you.

Happy surfing and investing,
- -Christy

p.s.  Bad timing on Roth conversions can suck...  I converted a week ago and my account is now
worth $1k less than what I will be paying taxes on.  It's for the long term so I won't worry
about it... (too much)





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------------------------------

Date: Wed, 29 Jul 1998 12:09:05 -0700 (PDT)
From: Kristina Miranda <[e-mail]>
Subject: How do "tax deductible" contributions work?

I am wondering what "tax deductible" really means. Is it a 1:1
relation to what you owe in taxes? For instance, If I am going to
owe $3000 to the IRS next April, can I make $3000 in tax-deductible
donations before January and pay nothing to the IRS?

Thanks,
Kristina Miranda





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------------------------------

Date: Wed, 29 Jul 1998 16:34:04 EDT
From: <[e-mail]>
Subject: Gift taxes -- 10k limit doesn't apply for estates less than $600k

In a message dated 7/29/98 9:39:48 AM Pacific Daylight Time, [e-mail]
writes:

> As you must have learned by now, the $10,000 is an annual limit on amount
you
>  can give to any single individual.
>
>  The $600,000 is the lifetime limit on the total amount you can gift away
>  without tax to all individuals.  This is in addition to the $10,000 per
> person
>  per year.
>

If the amount of the gift and estate is less that $600k,
the following from the Nolo Press website
(http://www.nolo.com/ChunkEP/ep81-85.html)
suggests that there will be no gift taxes, even if the amount given to
an individual in one year is more than $10k (but less than the $600k total
exemption):

Gift and estate tax isn't actually paid until the exempt amount is used up,
either by making  taxable gifts during your life, leaving property at death or
a combination of the two. This means that people with estates likely to be
worth under $600,000 don't ever have to worry about paying gift tax, even
though a federal gift tax return must be filed for any gift over $10,000 to a
person per year.



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------------------------------

Date: Wed, 29 Jul 1998 17:20:44 -0400
From: "Cal Lester" <[e-mail]>
Subject: Re: Gift taxes

- -----Original Message-----
From: persfin-digest <[e-mail]>
To: [e-mail] <[e-mail]>
Date: Wednesday, July 29, 1998 11:55 AM
Subject: persfin-digest V5 #38


>persfin-digest        Wednesday, July 29 1998        Volume 05 : Number 038
>

>Date: Tue, 28 Jul 1998 14:09:47 EDT
>From: <[e-mail]>
>Subject: Gift taxes
>
>I'm reading conflicting material about gift taxes.   I read that up to
$600k may
>be gifted without taxes, then I read that only $10k per year can be gifted
without taxes (see below)
>
>I'd appreciate any clarification anyone can offer.
>Thanks,
> -- Mike Mills
>Conflicting nfo from an internet web site:
>
>The 1997 exemption of $600,000 from estate taxes and gift taxes to which
>everyone is entitled will gradually increase until it reaches $1 million in
>2006. Thus, people will be able to pass on greater amounts to their heirs
>free of either estate or gift taxes.
>
>Under current law, you may give up to $10,000 to any other person during a
>year without having to pay the gift tax
>


>>>>    Mike, what you read is basically correct. YOU are confusing GIFTING
with Federal Unified Estate/ Gift Tax. When you die, EVERY dollar that you
leave in your ESTATE is subject to the Feral Esate Tax. However there is a
Unified CREDIT of about $182,000 or so dollars, that is EQUIVILENT to the
amount of TAX that would be DUE 9 months after your Death, on an Esate of
$625,000, for 1998. If you are married, then each of you have the same
credit (total $1,250,000). Therefore, IF your ESTATE is valued at LESS than
$625,000 at your Death, then it would owe ZERO in Federal Estate Tax.

            There are two caveats that go with that:

1) you can make a GIFT to anyone in any amount up to $10,000, and NOT incur
any Gift Tax. IF you were to make a gift of MORE than $10,000 then you would
have the choice of either paying the Current Gift Tax applicable, or USING
up a portion of YOUR Unified Estate/Gift Tax EXCLUSION Credit. If you are
married, then each of you could GIFT up to $10,000 to as many people or
organizations that you wish.

2) IF you are married, you are permitted to GIFT ANY amount to your Spouse
at your Death, and No Federal Estate Tax will be due at that time. However
when the Spouse dies, the entire amount (less that Spouses excludable
amount) will be taxable.

If that is not perfectly clear, write to me.
Cal Lester CLU
Insurance Course Coordinator
Broward Community College
[e-mail]







- -

------------------------------

Date: Wed, 29 Jul 1998 19:53:44 -0400
From: Rich Carreiro <[e-mail]>
Subject: Re: stock sale & capital gains tax

>With the changes in the tax law, I have a question about
>how the new law works.  I believe that you pay a lower
>tax on your gains if you've held the stock for at least
>18 months.  So let's say you have the following

It's changed again.  You now get the lowest rate (10% or 20%,
depending on your overall bracket) after a holding period of only 12
months.

>situation.  Here are the dates and prices for purchase
>of XYZ stock.
        ^^^^^

>Jan-95  100 shares  $12/sh
>Jan-96  100 shares  $15/sh
>Jan-97  100 shares  $18/sh
>Jan-98  100 shares  $20/sh
>
>Now in July 1998 you sell 200 shares.  In the past I
>believe that you had several options for determining
>your per share cost.  These were first-in-first-out,
>last-in-first-out, and an average.

This is incorrect.  For things other than mutual funds,
you have only two options:
(1) First-in, first-out.  This is the default option.
(2) Specific identification.  You get to pick what shares
    you are selling.  HOWEVER, the choice has to be made
    *at the time of the sale*, not after the fact, and must
    be communicated to the broker.  The broker in turn needs
    to acknowledge your choice on the confirm slip or a
    reasonably cotemporaneous letter.

You can switch between (1) and (2) at will.

For mutual funds you have those two options, and you also have
single-category averaging and double-category averaging.  Like
non-fund securities, you can switch between (1) and (2) at will, but
once you pick an averaging method, you are locked into it until you
finally close out your position in the fund or get approval from the
IRS to change.

Note also that with single-category averaging (overwhelmingly the
most common kind of averaging), you are always deemed to be selling
the oldest shares first, for purposes of determining holding period.

Check out IRS Pub 550 and also www.fairmark.com, which is (IMHO)
an excellent site for plain language explanations of investment
tax issues.

Rich Carreiro
[e-mail]
P5-100/RedHat Linux 4.1



- -

------------------------------

Date: Wed, 29 Jul 1998 20:09:10 -0400
From: Rich Carreiro <[e-mail]>
Subject: Re: Gift taxes

The site you were reading has things worded very badly.  The way
it works is this...

Assuming you're still alive and have never gifted more than $10,000
in one year to any one person, you are the proud owner of a $202,050
unified gift/estate tax credit.

A summary of the rule is:
(1) Each tax year you have to add up all the gifts you gave to everyone,
  figure out the gift tax on that amount, and use the unified credit to
  offset the tax.  If the credit is used up, you have to pay the tax.
  The $202,050 unified credit is enough to shelter $625,000 of taxable
  gifts from tax.
(2) HOWEVER, you exclude from the calculation calendar year gifts of $10,000
  or less (this is indexed to inflation starting in 1999) of a present
  interest to any one person.  So if you gave $5,000 to Joe and $10,000
  to Jane, and $25,000 to Billy, the $5,000 and the $10,000 get excluded,
  as does the first $10,000 of the $25,000, leaving you with $15,000 in
  taxable gifts for the year.  If you have made taxable gifts, you have
  to file a gift tax return, even if there's actually no tax to pay.
(3) When you die, your executor figures out the taxable portion of the
  estate and computes the tax on that.  If your remaining credit covers
  the tax, there's nothing to pay.  If it doesn't, then estate tax is due.

Because of the $10,000 per year per recipient exclusion, most people
never have to file a gift tax return and never have their unified
credit reduced during life.  So when they die, the full credit is
available and will offset the tax on the first $625,000 of taxable
estate.

I note that in reality (3) is somewhat more complex.  You actually do
something like adding back to the estate for tax purposes all the
taxable gifts ever made, but then using the entire credit.  It can be
very confusing.

If you're interested in more gory details, check out forms 706 and 709
and their instructions.

Rich Carreiro
[e-mail]
P5-100/RedHat Linux 4.1



- -

------------------------------

Date: Wed, 29 Jul 1998 19:24:49 -0400
From: "Stephan Iscoe" <[e-mail]>
Subject: re: Market Surveys

Jack mentioned:
>I was wondering how I would go about finding someone to prepare a brief
market
>survey (for a reasonable price)?  Anyone have any ideas?  Then, I'd like to
get
>college students to actually take these surveys around their campuses
...<snip>

Jack, I think you already found a solution!
College students+campus=college=business school=student project=free!
Make a proposal to the department head strssing the benefit to the school,
curriculum, and students.
Regards,
Stephan Iscoe
Ann Arbor, MI
http://LinktoSuccess.com





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------------------------------

Date: Wed, 29 Jul 1998 22:19:21 -0400
From: Harry Matthews <[e-mail]>
Subject: Credit reports, and gold coins

CREDIT REPORTS?
Regardless of the cost, it's vital to check all three bureaus at least once a year.  As the
President of the Board of Trustees of a New York City co-op, I see dozens of credit reports each
year, and I am always appalled by the obvious inaccuracies I see.

In my own case, I discovered that Trans Union failed to note -- 11 months later -- that I had
paid off my mortgage.  The company also listed as "current" a charge account with a store that
had been out of business for more than a decade.  To top the cake, they listed two "former
addresses" where I have never even visited.  After my protests, these errors were corrected.

Most of the information the bureaus collect is correct, but if you, the consumer, don't keep
track of errors, the companies just don't care.  Especially if you have a common name ("Smith,"
"Brown," "Jones), errors are likely to be numerous.  It's worth the $20 - $30 it takes to check
out all three listings.  Some financial software (like Quicken) includes modules to simplufy the
process.

GOLD COINS?
Surely you jest!  In recent years, stocks and bonds have gained 12-20% per year, while gold has
remained static.  In short, investing in precious metals in the current market is a good way to
lose money fast.  Keep in mind, too, that holding gold coins involves substantial storage and
insurance costs that further reduce this non-existent gain.  If you want to "put your money in
the ground," stick to stocks devoted to natural resources, like oil, coal, steel, copper, or
even gold stocks.  Coins are a sucker bet!








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------------------------------

Date: Thu, 30 Jul 1998 18:00:02 -0400
From: "Steve Foulks" <[e-mail]>
Subject: re: Limit on 403(b) contributions

>Date: Fri, 24 Jul 1998 13:28:20 -0500
>From: [e-mail]
>Subject: Limit on 403(b) contributions?
>I work for a non-profit organization & have a question about
>retirement plan.
>I have a mandatory contribution + employer matched contribution.
>In addition I am allowed a supplemental voluntary (deductible)
>contribution (SRA) which I'd like to max out.
>My employer has a calculation (which is done every quarter)
>& takes into account salary, my age, years of service and
>amount already in SRA. There are 4 different formula & the
>calculation which results in the minimum is contributed.
>Are these specified by the IRS? I thought the IRS just had
>something like 15% (or 25%) of Gross Income with max of $9500?

There is one basic formula in code section 403(b) which says that 20% of
gross taxable salary may be contributed to your 403(b) plan (both you and
your employer's share).

The other 3 formulas you mention are for "catching up" in years where you
did not make the maximum contribution.  There are laid out in section 415(b)
of the IRC.  They are quite complicated.  Most 403(b) vendors can do the
computation for you.  I created a spreadsheet template to do it for me a few
years ago.


>Can organizations have their own limits & formulae?

No this is governed by the IRC.

Steven M. Foulks, CPA, CFP, PhD
<http://www-instruct.nmu.edu/business/sfoulks/>






- -

------------------------------

Date: Fri, 31 Jul 1998 01:02:51 -0400
From: "Steve Foulks" <[e-mail]>
Subject: Re: Finding solutions to Social Security

>Date: Sat, 25 Jul 1998 16:00:09 -0400 (EDT)
>From: BARBARA SCHUTZ <[e-mail]>
>Subject: Finding solutions to Social Security

>I am really interested in the discussion re "Social Security," but I am
>primarily interested in ideas that will help us solve the current
>funding problem.

There is no current funding problem.  In fact SS (OAISD) is going to run a
$85 billion surplus this year. The problem is that politicians have
increased benefits for all recipients to get reelected over its entire
history without given any consideration to the amounts paid into the system
by these recipients.

In your pension plan, your plan administrator will pay out benefits based
upon the amount of money contributed, how much it has earned and your age.
With SS congress changes (increases) benefits willy nilly without giving any
consideration to contributions made by recipients.  This has worked fine,
but when the numbers of retirees increases in relation to workers, the s--t
will hit the fan ultimately.  Current and previous retirees have made out
like bandits, whereas you will get screwed.

The attitude of a congressman is, "The problems won't surface for 15 years
or so and I will be out of congress by then, so I will avoid discussing the
medicine needed for SS to be solvent (i.e., reduce benefits to current
recipients to reflect their contributions) because the senior citizens will
vote me out if I touch SS.


 It seems that many are at work trying to protect our
>social fabric by devising ways to keep social security solvent. I think
>our government can use good ideas to accomplish that. Is anyone else
>interested in this discussion? BFS

There is a list at: [e-mail]  which has
excellent discussions and articles on the SS conundrum.

Steven M. Foulks, CPA, CFP, PhD
<http://www-instruct.nmu.edu/business/sfoulks/>







- -

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End of persfin-digest V5 #39
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